Macro Econ Final Study Guide

coins, paper currency, and checkable deposits.

the latter includes small-denominated time deposits, noncheckable savings accounts, money market deposit accounts, and money market mutual fund balances.

by the government's ability to control the supply of money and therefore to keep its value relatively stable.

the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis.

provide facilities by which commercial banks and thrift institutions may collect checks.

They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.

they reduced their direct exposure to mortgage default risk but were still exposed through loans to investors in mortgage-backed securities.

bundling groups of loans, bonds, mortgages, and other financial debts into new securities.

moral hazard

In its role as lender of last resort, the Federal Reserve did not distinguish between insolvent and solvent firms.

banks can create money through the lending process.

are a risk of fractional reserve banking but are unlikely when banks are highly regulated and lend prudently.

Assets equal liabilities plus net worth.

assets to the commercial bank and liabilities to the Federal Reserve Bank holding them.

bank against which the check is cleared loses reserves and deposits equal to the amount of the check.

excess reserves

Creates; destroys

the reserve ratio

reserves lost by any particular bank will be gained by some other bank.

using borrowed money in an attempt to increase profits.

because the opportunity cost of holding money increases as the interest rate rises.

the purchase of government bonds in the open market by the Federal Reserve Banks

the discount rate, the reserve ratio, interest on excess reserves, and open-market operations.

the purchase or sale of government securities, as well as collateralized money loans, by the Fed.

repo

federal funds rate

through the use of its open-market operations.

moves in the same direction as the federal funds rate

the Fed pursued quantitative easing.

a restrictive monetary policy can force a contraction of the money supply, but an expansionary monetary policy may not achieve an increase in the money supply.